Vasquez Corporation is considering investing in two different projects. It could invest in both, neither, or just one of the projects. The forecasts for the projects are as follows.
- Project A Project B
- Capital investment $195,950 $301,810
- Net annual cash flows $50,535 $65,116
- Length of project 5 years 7 years
The minimum rate of return acceptable to Vasquez is 10%.
Instructions Compute the net present value of the two projects. (Round answers to 0 decimal places, e.g. 125. If amount is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
PROJECT A $
PROJECT B $
What capital budgeting decision should Vasquez make? Invest in
Project A could be modified. By spending $19,395 more initially, the net annual cash flows could be increased by $10,160 per year.
Calculate the new net present value. $ ______________What project(s) should Vasquez's invest in?